Lanne, Markku and Saikkonen, Pentti (2009): Modeling Expectations with Noncausal Autoregressions.
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This paper is concerned with univariate noncausal autoregressive models and their potential usefulness in economic applications. We argue that noncausal autoregres- sive models are especially well suited for modeling expectations. Unlike conventional causal autoregressive models, they explicitly show how the considered economic variable is affected by expectations and how expectations are formed. Noncausal autoregressive models can also be used to determine to what extent the expectation, and, hence, current value of an economic variable depends on its past realized and future expected values. Dependence on future values suggests that the underlying economic model has a nonfundamental solution. We show in the paper how the parameters of a noncausal autoregressive model can be estimated by the method of maximum likelihood and how related test procedures can be obtained. Because noncausal autoregressive models cannot be distinguished from conventional causal autoregressive models by second order properties or Gaussian likelihood, a detailed discussion on their speci�cation is provided. As an empirical application, we consider modeling the U.S. inflation dynamics which, according to our results, depends only on its expected future values.
|Item Type:||MPRA Paper|
|Original Title:||Modeling Expectations with Noncausal Autoregressions|
|Keywords:||Noncausal autoregression; expectations; inflation persistence|
|Subjects:||C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation, Validation, and Selection
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation
C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes
|Depositing User:||Markku Lanne|
|Date Deposited:||10. Jul 2010 08:34|
|Last Modified:||01. Jan 2016 13:16|
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Modeling Expectations with Noncausal Autoregressions. (deposited 23. Apr 2008 14:53)
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